Dive Brief:

• Etsy on Monday reported fourth quarter revenue rose 46.8% year-over-year to $200 million, driven by growth in both its marketplace and services. Its active buyer base grew 18.2% year over year in the quarter, and trailing twelve-month gross merchandise sales (GMS) per active buyer accelerated for the fifth consecutive quarter, according to a company press release. Active sellers grew 9.4% year over year.

• The quarterly results were bolstered by a strong holiday performance, the company also said. In particular, GMS from Thanksgiving through Cyber Monday rose 30% year over year, driven mostly by product launches, marketing and improved landing pages. Shipping incentives and seller education led to more items priced competitively: A third of items shipped free, and nearly 80% shipped at competitive prices, the company said.

• Net income for the fourth quarter fell 7.8% to $41.3 million from $44.8 million. Adjusted EBITDA rose 47.5% to $51.4 million or EBITDA margins of about 26%. For the year, Etsy total revenue rose 20.8% to $3.9 billion as full-year currency neutral GMS accelerated to 20.4% and adjusted EBITDA margin expanded to 23%.

Dive Insight:

Etsy has had the good fortune of having a robust economy as a backdrop to its effort to make much-needed improvements to its experiences on both the seller and the buyer side.

After grabbing the craft-and-maker niche as a marketplace, the company had wobbled, allowing in too many mass manufacturers and possible counterfeiters in the quest for growth after becoming a public company. Etsy is now turning to more refined (and possibly expensive) maneuvers to grow its number of makers and buyers — and most importantly its sales.

"With the strong economy at our back, we believe Etsy's growth was higher than the overall e-commerce market indicating that we're gaining share in a very large and expanding addressable market," CEO Joshua Silverman told analysts on a conference call, according to a transcript from Seeking Alpha. "Our continued focus on improving the Etsy platform for sellers and buyers is paying off."

The marketplace model is a potentially lucrative one in retail because sellers shoulder many of the costs of inventory and fulfillment right off the bat, and pay the marketplace for amenities like marketing and other services. But the temptation to throw the doors wide open can backfire on the host company, as both Amazon and Walmart have found. Sellers who hawk fakes or items with controversial uses or embellishments or who fail to deliver adequate customer service are essentially taking a sledgehammer to the marketplace’s brand.

Target, for one, appears to be working to avoid that, in light of their announcement this week that it's carefully putting together a third-party marketplace by invitation only, an effort to widen its assortment with items the retailer believes its customers will appreciate.

Among Etsy’s other areas of focus at the moment is shipping, which executives say has involved working with sellers to bring costs down for customers. "Having more items that are free shipping in the fourth quarter mattered," he said. "Making items that were on sale a little bit more visible was very helpful."

But that wasn’t just about the holidays, either, he also said. "[W]e really focused this quarter on only doing things that were not just helpful in the holiday season, but that could help us all year long," he said. "Something that was going to be really great for six days and then not matter for the rest of the year we decided the opportunity cost was just too high. So we did things that we think were really beneficial in the fourth quarter and repeatable."